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Currency Stability Using Blockchain Technology

Author

Listed:
  • Bryan Routledge

    (Carnegie Mellon University)

  • Ariel Zetlin-Jones

    (Carnegie Mellon University)

Abstract

Arbitrary speculative attacks on currencies can arise from self-fulfilling expectations. This is a well-studied source of currency crises. In this paper, we show that blockchain distributed ledger technologies, such as those which support Bitcoin and Ethereum, can be adapted to eliminate self-fulfilling speculative attacks on a currency. We show how to develop a stable currency peg, such as Pesos to Dollars, using a cryptocurrency. We show the peg is immune to speculative attacks arising from self-fulfilling prophecies and estimate the size of reserves and transaction costs needed to support the peg.

Suggested Citation

  • Bryan Routledge & Ariel Zetlin-Jones, 2018. "Currency Stability Using Blockchain Technology," 2018 Meeting Papers 1160, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:1160
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    Cited by:

    1. Bruno Sultanum, 2021. "The Cost of Information in the Blockchain: A Discussion of Routledge and Zetlin-Jones," Working Paper 21-02, Federal Reserve Bank of Richmond.
    2. Gilles Hilary & Laura Xiaolei Liu, 2021. "Blockchain and Other Distributed Ledger Technologies in Finance," Springer Books, in: Raghavendra Rau & Robert Wardrop & Luigi Zingales (ed.), The Palgrave Handbook of Technological Finance, pages 243-268, Springer.
    3. Feng Dong & Zhiwei Xu & Yu Zhang, 2022. "Bubbly Bitcoin," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(3), pages 973-1015, October.
    4. Yukun Liu & Aleh Tsyvinski & Xi Wu, 2019. "Common Risk Factors in Cryptocurrency," NBER Working Papers 25882, National Bureau of Economic Research, Inc.
    5. Kee‐Youn Kang & Seungduck Lee, 2024. "Money, Bitcoin, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(1), pages 225-256, February.
    6. Yukun Liu & Aleh Tsyvinski, 2018. "Risks and Returns of Cryptocurrency," NBER Working Papers 24877, National Bureau of Economic Research, Inc.

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